Production and Operations Management
Gowrie Vinayan
Operations Strategy in a Global Environment
Objective :
Production and Operations Management
1. Define mission and strategy
2. Identify and explain three strategic approaches to competitive advantage
3. Understand the significant key success factors and core competencies
4. Use factor rating to evaluate both country and provider outsources
5. Identify and explain four global operations strategy options
Global Strategies
▶ Boeing – sales and supply chain are worldwide
▶ Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution
▶ Sony – purchases components from suppliers in Thailand, Malaysia, and around the world
Reasons to Globalize
1. Improve the supply chain2. Reduce costs (labor, taxes, tariffs, etc.)3. Improve operations4. Understand markets5. Improve products6. Attract and retain global talent
Improve the Supply Chain
▶ Locating facilities closer to unique resources▶ Auto design to California▶ Athletic shoe production to China▶ Perfume manufacturing in France
Reduce Costs
▶ Foreign locations with lower wage rates can lower direct and indirect costs
▶ Trade agreements can lower tariffs▶ Maquiladoras▶ World Trade Organization (WTO)▶ North American Free Trade Agreement
(NAFTA)▶ APEC, SEATO, MERCOSUR, CAFTA▶ European Union (EU)
Improve Operations
▶ Understand differences between how business is handled in other countries
▶ Japanese – inventory management▶ Scandinavians – ergonomics
▶ International operations can improve response time and customer service
Understand Markets▶ Interacting with foreign customers,
suppliers, competition can lead to new opportunities▶ Cell phone
design moved from Europe to Japan
▶ Extend the product life cycle
Improve Products
• Remain open to free flow of ideas• Toyota and BMW manage joint
research and development– Reduced risk, state-of-the-art design,
lower costs• Samsung and Bosch jointly produce
batteries
Attract and Retain Global Talent
▶ Offer better employment opportunities▶ Better growth opportunities and
insulation against unemployment▶ Relocate unneeded personnel to
more prosperous locations
Cultural and Ethical Issues
▶ Cultures can be quite different
▶ Attitudes can be quite different towards► Punctuality► Lunch breaks► Environment► Intellectual
property
► Thievery► Bribery► Child labor
Companies Want To Consider
▶ National literacy rate▶ Rate of innovation▶ Rate of technology
change▶ Number of skilled
workers▶ Political stability▶ Product liability laws▶ Export restrictions▶ Variations in language
► Work ethic
► Tax rates
► Inflation
► Availability of raw materials
► Interest rates
► Population
► Number of miles of highway
► Phone system
Match Product & Parent
1. Volkswagen
2. Bridgestone
3. Campbell Soup
4. Tata Motors Limited
5. Proctor and Gamble
6. Nestlé
7. Pillsbury
8. Sony
► Braun Household Appliances
► Firestone Tires
► Godiva Chocolate
► Haagen-Dazs Ice Cream
► Jaguar Autos
► MGM Movies
► Lamborghini Autos
► Alpo Petfoods
► Braun Household Appliances
► Firestone Tires
► Godiva Chocolate
► Haagen-Dazs Ice Cream
► Jaguar Autos
► MGM Movies
► Lamborghini Autos
► Alpo Petfoods
Match Product & Parent
1. Volkswagen
2. Bridgestone
3. Campbell Soup
4. Tata Motors Limited
5. Proctor and Gamble
6. Nestlé
7. Pillsbury
8. Sony
Match Product & Country
1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland
6. India
► Braun Household Appliances
► Firestone Tires
► Godiva Chocolate
► Haagen-Dazs Ice Cream
► Jaguar Autos
► MGM Movies
► Lamborghini Autos
► Alpo Petfoods
Match Product & Country
1. Great Britain
2. Germany
3. Japan
4. United States
5. Switzerland
6. India
► Braun Household Appliances
► Firestone Tires
► Godiva Chocolate
► Haagen-Dazs Ice Cream
► Jaguar Autos
► MGM Movies
► Lamborghini Autos
► Alpo Petfoods
Developing Missions and Strategies
Mission statements tell an organization where it is going
The Strategy tells the organization how to get there
Mission
► Mission - where is the organization going?
► Organization’s purpose for being► Answers ‘What do we contribute to
society?’► Provides boundaries and focus
Merck
The mission of Merck is to provide society with superior products and services—innovations and solutions that improve the quality of life and satisfy customer needs—to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return.
Benefit to Society
Mission
Factors Affecting Mission
Philosophy and Values
Profitability and GrowthEnvironment
Customers Public Image
Strategic Process
Marketing OperationsFinance/
Accounting
Functional Area Missions
Organization’s Mission
Sample Missions
Sample Company Mission
To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.
Sample Operations Management Mission
To produce products consistent with the company’s mission as the worldwide low-cost manufacturer.
Sample Missions
Sample OM Department Missions
Product design To design and produce products and services with outstanding quality and inherent customer value.
Quality management To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production, and field service operations
Process design To determine, design, and produce the production process and equipment that will be compatible with low-cost product, high quality, and good quality of work life at economical cost.
Sample MissionsSample OM Department Missions
Location To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community.
Layout design To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life.
Human resources To provide a good quality of work life, with well-designed, safe, rewarding jobs, stable employment, and equitable pay, in exchange for outstanding individual contribution from employees at all levels.
Sample MissionsSample OM Department Missions
Supply-chain management
To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply.
Inventory To achieve low investment in inventory consistent with high customer service levels and high facility utilization.
Scheduling To achieve high levels of throughput and timely customer delivery through effective scheduling.
Maintenance To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment.
Strategy
► Action plan to achieve mission
► Functional areas have strategies
► Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses
Strategies for Competitive Advantage
1. Differentiation – better, or at least different
2. Cost leadership – cheaper
3. Response – more responsive
Competing on Differentiation
Uniqueness can go beyond both the physical characteristics and service
attributes to encompass everything that impacts customer’s perception of value
► Safeskin gloves – leading edge products
► Walt Disney Magic Kingdom – experience differentiation
► Hard Rock Cafe – dining experience
Competing on Cost
Provide the maximum value as perceived by customer. Does not imply
low quality.
► Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment
► Walmart – small overhead, shrinkage, and distribution costs
► Franz Colruyt – no bags, no bright lights, no music, and doors on freezers
Competing on Response
▶ Flexibility is matching market changes in design innovation and volumes▶ A way of life at Hewlett-Packard
▶ Reliability is meeting schedules▶ German machine industry
▶ Timeliness is quickness in design, production, and delivery▶ Johnson Electric,
Pizza Hut, Motorola
OM’s Contribution to Strategy
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Scheduling
Maintenance
DIFFERENTIATION:Innovative design Safeskin’s innovative gloves Broad product line Fidelity Security’s mutual
funds After-sales service Caterpillar’s heavy equipment
service Experience Hard Rock Café’s dining
experience
COST LEADERSHIP: Low overhead Franz-Colruyt’s warehouse-
type stores Effective capacity Southwest Airline’s use
aircraft utilization
Inventory Walmart’s sophisticated management
distribution system
RESPONSE: Flexibility Hewlett-Packard’s response to
volatile world market Reliability FedEx’s “absolutely,
positively, on time” Quickness Pizza Hut’s 5-minute guarantee
at lunchtime
10 Operations CompetitiveDecisions Strategy Example Advantage
Response(faster)
Cost leadership(cheaper)
Differentiation(better)
Issues In Operations Strategy
▶ Resources view
▶ Value-chain analysis
▶ Porter’s Five Forces model
▶ Operating in a system with many external factors
▶ Constant change
Product Life Cycle
Best period to increase market share
R&D engineering is critical
Practical to change price or quality image
Strengthen niche
Poor time to change image, price, or quality
Competitive costs become criticalDefend market position
Cost control critical
Introduction Growth Maturity Decline
Co
mp
any
Str
ateg
y/Is
sues
Internet search engines
Sales
Drive-through restaurants
DVDs
Analog TVs
Boeing 787
Electric vehicles
iPods
3-D game players
3D printers
Xbox 360
Product Life Cycle
Product design and development critical
Frequent product and process design changes
Short production runs
High production costs
Limited models
Attention to quality
Introduction Growth Maturity Decline
OM
Str
ateg
y/Is
sues
Forecasting critical
Product and process reliability
Competitive product improvements and options
Increase capacity
Shift toward product focus
Enhance distribution
Standardization
Fewer product changes, more minor changes
Optimum capacity
Increasing stability of process
Long production runs
Product improvement and cost cutting
Little product differentiation
Cost minimization
Overcapacity in the industry
Prune line to eliminate items not returning good margin
Reduce capacity
Strategy
Analysis
SWOT Analysis
Internal Strengths
Internal Weaknesses
External Opportunities
External Threats
Mission
Strategy Development Process
Determine the Corporate Mission
State the reason for the firm’s existence and identify the value it wishes to create.
Form a Strategy
Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-sale service,
broad product lines.
Analyze the EnvironmentIdentify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
Strategy Development and Implementation
▶ Identify key success factors
▶ Integrate OM with other activities
▶ Build and staff the organization
The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity
Implementing Strategic DecisionsOperations Strategies of Two Drug Companies
COMPETITIVE ADVANTAGE
BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.
PRODUCT DIFFERENTIATION STRATEGY
LOW COST STRATEGY
Product selection and design
Heavy R&D investment; extensive labs; focus on development in a broad range of drug categories
Low R&D investment; focus on development of generic drugs
Quality Quality is major priority, standards exceed regulatory requirements
Meets regulatory requirements on a country-by-country basis, as necessary
Process Product and modular production process; tries to have long product runs in specialized facilities; builds capacity ahead of demand
Process focused; general production processes; “job shop” approach, short-run production; focus on high utilization
Location Still located in city where it was founded Recently moved to low-tax, low-labor-cost environment
Implementing Strategic DecisionsOperations Strategies of Two Drug Companies
COMPETITIVE ADVANTAGE
BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.
PRODUCT DIFFERENTIATION STRATEGY
LOW COST STRATEGY
Layout Layout supports automated product-focused production
Layout supports process-focused “job shop” practices
Human resources
Hire the best; nationwide searches Very experienced top executives provide direction; other personnel paid below industry average
Supply chain Long-term supplier relationships Tends to purchase competitively to find bargains
Inventory Maintains high finished goods inventory primarily to ensure all demands are met
Process focus drives up work-in-process inventory; finished goods inventory tends to be low
Scheduling Centralized production planning Many short-run products complicate scheduling
Maintenance Highly trained staff; extensive parts inventory
Highly trained staff to meet changing demands
Strategic Planning, Core Competencies, and Outsourcing
• Outsourcing – transferring activities that traditionally been internal to external suppliers
• Accelerating due to– Increased technological expertise– More reliable and cheaper transportation– Rapid development and deployment of
advancements in telecommunications and computers
Strategic Planning, Core Competencies, and Outsourcing
▶Subcontracting - contract manufacturing
▶Outsourced activities
Theory of Comparative Advantage
▶If an external provider can perform activities more productively than the purchasing firm, then the external provider should do the work
▶Purchasing firm focuses on core competencies
▶Drives outsourcing
Risks of OutsourcingPotential Advantages and Disadvantages of Outsourcing
ADVANTAGES DISADVANTAGES
Cost savings Increased logistics and inventory costs
Gaining outside expertise Loss of control (quality, delivery, etc.)
Improving operations and service Potential creation of future competition
Maintaining a focus on core competencies
Negative impact on employees
Accessing outside technology Risks may not manifest themselves for years
Rating Outsourcing Providers
▶Insufficient analysis most common reason for failure
▶Factor rating method
▶Points and weights assigned for each factor to each
Rating Provider Selection CriteriaFactor Ratings Applied to National Architects’s Potential IT Outsourcing Providers
IMPORTANCE WEIGHTS
OUTSOURCING PROVIDERS
FACTOR (CRITERION)BIM (U.S.)
S.P.C.(INDIA)
TELCO (ISRAEL)
1. Can reduce operating costs .2 3 3 5
2. Can reduce capital investment .2 4 3 3
3. Skilled personnel .2 5 4 3
4. Can improve quality .1 4 5 2
5. Can gain access to technology not in company .1 5 3 5
6. Can create additional capacity .1 4 2 4
7. Aligns with policy/philosophy/culture .1 2 3 5
Totals 1.0 3.9 3.3 3.8
Score for BIM = (.2 * 3) + (.2 * 4) + (.2 * 5) + (.1 * 4) + (.1 * 5) + (.1 * 4) + (.1 * 2) = 3.9
The End
Thank you for your attention!